Home prices in California’s major cities have risen steadily over the last few years. As a result, a lot of home buyers in the state are looking for ways to lower their down payments.
One way to accomplish this is by using an FHA-insured mortgage loan to buy a house. California FHA loans allow for down payments as low as 3.5% of the purchase price or appraised value. Here’s what that 3.5% investment might look like in some of California’s major cities.
Minimum Required Investment for FHA: 3.5%
According to the Department of Housing and Urban Development, which oversees this program, California home buyers who use an FHA loan to buy a house must make a “minimum required investment” of 3.5%. That’s the least you could put down when using this particular mortgage program to buy a home.
That’s a bit lower than the average down payment for a conventional (non-FHA) mortgage loan in California. And that’s what attracts a lot of home buyers to the FHA program in first place. It is a low-down-payment financing option that appeals to many borrowers, particularly those who don’t have a lot of money saved for a larger down payment.
Estimating the Average Down Payment For California Cities
To give you an idea of what the average FHA down payment might look like for California’s major cities, we calculated it based on median home values as of September 2017. We used data provided by CoreLogic, Zillow, and other providers to get a feel for current home prices, and then applied a down payment of 3.5%.
Here’s what the average investment might look like for key cities across the state: *
- Los Angeles County had a median home value of $580,000 at the time of publication. So the average FHA down payment would be somewhere around $20,300, based on that figure.
- Oakland’s median home price was around $689,000. An investment of 3.5% would come to $24,115.
- Orange County had a median of $685,000 as of September. The lowest FHA down payment at that price point would be $23,975.
- San Diego came in with a median house value of $535,000. The minimum investment here would come to $18,725.
- San Francisco (a statistical standout) had a median home price of a whopping $1.2 million. So we’re talking about jumbo loan territory here. Within San Francisco County, FHA loans have a limit of $636,150.
* Your minimum required investment could be less than the figures shown above, if you purchase a home that falls below the median price point for your area.
You Can Use Gift Money From Friends, Family, Etc.
If the minimum down payment for an FHA loan in California is beyond your reach, you still have options. The Federal Housing Administration allows borrowers who use this program to obtain gift money from third-party sources.
You could use money provided by a family member, or some other approved source, to help cover your down payment expense for an FHA loan.
The caveat here is that the person providing the funds must also write a letter stating they do not expect any kind of repayment. In other words, the money must truly be a gift – and not a loan.
The bottom line is that FHA loans are one way to lower your down payment expense when buying a home in California. The program allows borrowers to put down as little as 3.5% of the purchase price or the appraised value. On top of that, California home buyers can use gift money from approved third-party sources to further reduce their down payment expense.
Note: There are other ways to reduce your investment when buying a house in California, and we’ve covered them in a separate article.